TIME World Economic Forum

An Hour With Africa’s Richest Man

Honoree Aliko Dangote at the Time 100 Gala at Jazz at Lincoln Center in New York on April, 29, 2014.
Honoree Aliko Dangote at the Time 100 Gala at Jazz at Lincoln Center in New York on April, 29, 2014. Jonathan D. Woods for TIME

I’m waiting for Aliko Dangote. Everyone is. Africa’s richest man, worth $24.7 billion (more than Carl Icahn, George Soros and any number of lesser Western billionaires) is probably the most in-demand person at the World Economic Forum here in Abuja, Nigeria. He enters the Hilton on a red carpet, a mere 30 minutes late, with minders, the head of his foundation, and the second of his three grown daughters in tow. The hotel employees literally bow before him, lesser oligarchs wave and backslap, and the merely rich try to bum rides on his private plane. “I don’t know what to do, my wife really needs to get home,” says an Indian businessman to one of the numerous Dangote staffers hovering nearby, who smiles sympathetically and promises to look into things.

Dangote himself is unassuming. A 57-year-old man with an almost shy smile, he’s a practicing Muslim that acquaintances call “generous” and “prayerful.” He’s also a sharp elbowed business titan, the 24th richest in the world, who has survived ten different regimes in Nigeria, building a $2 billion empire on cement, sugar, salt, and more recently, energy. Dangote sat down with me in his suite at the Transcorp Hilton in Abuja Wednesday to discuss wealth, power, politics, and the future of Africa. Below are lightly edited excerpts from our talk:

TIME: I hear you haven’t taken a vacation in 20 years. Is that true?

Dangote: It used to be. I was working very hard for a long time to build up my business. Now, I try to take a week’s vacation every two weeks. We live in Lagos, on Victoria Island, but I like to go to Miami with my family. I used to own two homes in Atlanta. But it was a lot of trouble. There are leaky roofs, you have to call people. It takes up too much time to own property everywhere. Now I stay at the St. Regis. I used to like cars a lot, too. I had 25 of them, Porches, Ferraris. I would drive from Lagos to Kano at 180 miles per hour. But I stopped that after I had my second daughter.

You came from a certain amount of wealth. What was your upbringing like?

My great-grandfather was a kola nut trader, and the richest man in West Africa at the time of his death. My father was a businessman and politician. I was actually raised by my grandfather. It’s traditional in my culture for grandparents to take the first grandchild and raise it (Dangote’s older sister died as a baby in a car accident). I had a lot of love, and it gave me a lot of confidence.

You started with a loan from your uncle and built the most successful locally owned business conglomerate in Africa. What were the turning points?

I always tried to move up the food chain. I started with cement, and then moved into textiles, and banking. When I was trading sugar, I added salt and flour, so that then we could do pasta. And then I thought, why not make the bag for it too? So, we started making packaging.

This is a very entrepreneurial culture, but not a lot of people have your kind of success. What did you do differently?

We had a lot of capital, and we were able to build out our own power grid. The number one thing that kills businesses in Africa is power, or the lack of power. We wanted to have our businesses completely independent, with our own grid. So we built it. It took $1.2 billion. That’s a lesson I took from the financial crisis. It’s so important to have capital. At that point, we had about $2 billion in debt from expanding so quickly, so we had to scale back. But if I had more capital [in hand] in 2008, I could have bought so many things – homes, airplanes, land – so cheaply.

Now you are going up the food chain again, getting into energy, and in particular oil and gas refining. Nigeria has a lot of oil, but not a lot of refined gas. A lot of people feel that Africa could grow a lot faster with more of its own refinery capacity.

Yes, we’ll finish our refinery in 2017, and with it a petrochemical factory. This should take us to the next level. It’s all about integrating what we have. From the sugarcane we use, we can make ethanol. People say, “why get into agriculture?” but there is huge vertical integration between food and fuel, and Africa has both. Our rice and sugar business will create 180,000 new jobs in the next four years. We want to have a market capitalization of $100 billion by 2017. It’s my goal for my 60th birthday!

What’s your goal for this World Economic Forum meeting?

I want people to understand what’s really here. I feel Nigeria is like Colombia. People think about it based on information from 20 years ago. You think about Colombia, and all you think of is drug cartels, but really, there’s a lot of investor interest. It’s the same here in Nigeria. It’s not the 1970s. Things have changed.

But isn’t that the crucial juxtaposition here? You have growth, but no security. You have 8 % GDP growth, and over 200 missing girls that have been taken from their homes by Boko Haram.

It’s true. It hasn’t stopped business, but the situation is out of hand. I think the government is trying to get themselves together [around this issue]. I think they have been taken by surprise – there are people in places like Spain saying “where are these Nigerian girls?” It’s good that they’ve asked the US and the UK to help. And it’s important that the private sector do its part, too. Unless we create more jobs, we won’t eliminate Boko Haram. Even if we do, another such group will come. We have to empower our people.”

TIME World Economic Forum

Africa’s Middle Class Is at the Crossroads

People holding signs take part in a protest demanding the release of abducted secondary school girls from the remote village of Chibok, in Lagos, May 5, 2014.
People holding signs take part in a protest demanding the release of abducted secondary school girls from the remote village of Chibok, in Lagos, May 5, 2014. Akintunde Akinleye—Reuters

Nigeria's 8% growth and 233 missing girls pinpoint the continent's challenges

The World Economic Forum’s annual Africa meeting is starting today in Abuja, Nigeria. The story here was supposed to be an optimistic one–last week, the World Bank upgraded the country’s GDP numbers by 89 %, making it the number one largest economy in Africa. Yet the fact that there are still 233 missing girls that have been abducted from their homes in the northeast of the country by the Islamic radical group known as Boko Haram is casting a large shadow on that story. Standard & Poor’s rating agency recently downgraded the country’s credit based on rising terrorism (a car bomb last week outside Abuja, the second in recent weeks, killed 19 people), and corruption (the central bank head was put on suspension a few weeks ago after $20 billion was found unaccounted for in the Treasury).

On the shuttle buses and in the halls of the WEF meetings here in Abuja, I hear Western business people recalibrating their notions of political risk in this country, and fretting about whether a country that can’t keep girls safe in their schools can turn itself into the sort of middle class consumption society that everyone here hopes it can.

A big part of the problem has been misleading statements, delays and half-hearted efforts on the part of government. President Goodluck recently told local media that the government was doing “everything it can,” including taking help from the U.S, which has offered up a counter-terrorism team to track the abductors. But the general feeling amongst participants here at the WEF is that the lack of urgency around the issue represents the failure of government to provide the sort of basic security that is crucial to both African growth, and Western investment.

“There’s a good news story and a bad news story here,” says Rajiv Shah, the administrator of USAID, here attending the WEF meeting in Abuja. “The good news is that Nigeria is thriving economically. But the bad news is that this [incident with the girls] cuts to the heart of the continuing problems with safety and security here. Boko Haram has displaced 500,000 people in northern Nigeria. The president has instructed Secretary Kerry that we will do everything we can to help.”

Yet at the end of the day, the impetus for managing the crisis has to come from Nigerian leaders themselves–and so far, most seem much more interested in discussing foreign direct investment and GDP growth and privatization of the country’s various industries rather than security, and particularly the missing girls. But the two are linked. Research shows that countries don’t rise economically unless they can assure education and economic empowerment for women. Until Nigeria can protect its school children, it may find inclusive growth illusive.


Why Buffett Should Vote ‘No’ on Coke

Berkshire Hathaway Inc. CEO Warren Buffett Interview
Warren Buffet Chris Goodney—Bloomberg/Getty Images

The discussion over inequality is all the rage these days, and it’s been given a new wrinkle with the hoopla over Warren Buffett’s abstention from a vote over Coke’s new compensation plan, which would award billions of dollars to Coke managers in Coke stock if they hit certain performance targets. Buffett told CNBC that he opposed the idea, but wouldn’t directly vote against it, because he loved the company, which was run by “great people” (which, it must be said, includes his son, who sits on the firm’s board). Traditionally, Buffett has opposed excessive corporate compensation, as well as the stock buyback plans that often fuel oversized packages, because, as he said in a 1999 letter to shareholders, “repurchases are all the rage, but are all too often made for an unstated and, in our view, ignoble reason: to pump or support the stock price.”

I couldn’t agree more, and I wish he’d gone further and actually voted “No” to the Coke proposal. Pumping up corporate compensation with excessive stock deals fuels not only inequality but bad decision making (since executives are incentivized to do things that pump up prices in the short term but cut growth in the longer term.

Buy backs are a case in point. Even more than in the late 1999s, buybacks are all the rage right now. University of Massachusetts professor William Lazonick, who studies the effects of buybacks on corporate compensation and inequality, recently put out a paper showing that between 2003 and 2012, 449 of the S&P 500 companies gave out more than half of their earnings, some $2.4 trillion, on buying back shares of their own company. While this might seem like a vote of confidence, it’s hardly coincidental that his research shows that buybacks also tend to go hand-in-hand with lower future earnings and bull markets. Companies don’t buy back stock in down markets because they believe that the market has undervalued their great products and ingenuity; they do it in bull markets because they want to bolster their own pay at a time when underlying growth is sagging.

It’s a strategy being carried out today at companies like Apple, which just announced more share buybacks even as it announced lower earnings, and at Yahoo, which has offset an underwhelming growth story by buying back stock. It’s happening at Coke, too, and most of the country’s largest blue chip firms. It’s no wonder that execs want to be paid in stock – buybacks almost always bolster share prices over the short term, and investment income like stock makes you a lot richer than earned income from actual labor. It also decreases the amount of the economic pie that goes to labor versus management.

All this worries me. If you chart the rise of share buybacks against R&D spending in corporate America since the 1980s, the lines make a perfect X. We are very clearly bankrupting our future growth here. As Lazonick puts it, “Since the mid-1980s, corporations have funded the stock market rather than the market funding corporations.” Not to mention workers, or jobs (most large American corporations have had zero net job growth here at home over the last 30 years, even as corporate pay has risen to nosebleed levels). No wonder Thomas Piketty’s book on inequality and the triumph of capital over labor is at #1 on Amazon.


Here’s Why This Best-Selling Book Is Freaking Out the Super-Wealthy

Thomas Piketty FRED DUFOUR—AFP/Getty Images

There are many reasons why French academic Thomas Piketty’s 685-page tome, “Capital in the 21st Century,” has vaulted to the top of the Amazon.com best seller list and is being discussed with equal fervor by the world’s top economic policy makers and middle class Americans who wonder why they haven’t gotten a raise in years. The main reason is that it proves, irrefutably and clearly, what we’ve all suspected for some time now—the rich ARE getting richer compared to everyone else, and their wealth isn’t trickling down. In fact, it’s trickling up.

Piketty’s 15 years of painstaking data collection—he poured over centuries worth of tax records in places like France, the U.S., Germany, Japan and the U.K—provides clear proof that in lieu of major events like World Wars or government interventions like the New Deal, the rich take a greater and greater share of the world’s economic pie. That’s because the gains on capital (meaning, investments) outpace those on GDP. Result: people with lots of investments take a bigger chunk of the world’s wealth, relative to everyone else, with every passing year. The only time that really changes is when the rich lose a bundle (as they often do in times of global conflict) or growth gets jump started via rebuilding (as it sometimes does after wars).

This is particularly true in times of slow growth like what we’ve seen over the last few years. I’ve written any number of columns and blogs about how quantitative easing has buoyed the stock market, but not really provided the kind of kick that we needed to boost wage growth in the real economy, because it mostly benefits people who hold stocks–that’s the wealthiest 25 % of us. Meanwhile, consumption and wage growth remain stagnant. And as Piketty’s book makes so uncomfortably clear, it’s likely to get worse before it gets better. No wonder I saw an advertisement for a storage company on the subway the other day that read, “The French aristocracy didn’t see it coming, either.”

That’s one of Piketty’s biggest messages–inequality will slowly but surely undermine the population’s faith in the system. He doesn’t believe, as Marx did, that capitalism would simply burn itself out over time. In fact, he says that the more perfect and advanced markets become (at least, in economic terms), the better they work and the more fully they serve the rich. But he does believe that rising inequality leads to a less perfect union, and a likelihood of major social unrest that mirrors the sort that his native France went through in the late 1700s. Indeed, the subsequent detailed collection of wealth data in the form of elaborate income and tax records made France a particularly rich data collection ground for his book. (Bureaucracy is good for something!)

My feeling about this book is similar to that of New York Times’ columnist Paul Krugman. It’s going to be remembered as the economic tome of our era. Basically, Piketty has finally put to death, with data, the fallacies of trickle down economics and the Laffer curve, as well as the increasingly fantastical notion that we can all just bootstrap our way to the Forbes 400 list. It’s telling and important that Piketty credits his work to the fact that he didn’t forge his economic career in the States, as so many top thinkers do, because he was put off by the profession’s obsession with unrealistic mathematical models, which blossomed in the 1980s to the exclusion of almost all other ideas and disciplines, and the false ideologies that they were used to justify. “The truth is that economics should ever have sought to divorce itself from the other social sciences and can only advance in conjunction with them,” he argues.

Indeed, had more top economists followed the lead of other social scientists and ditched their black box models in favor of spending time in the field—meaning on Main Street, where trickle down theory hasn’t ever really worked—they might have come to the same conclusions that Piketty has. We can only hope that the politicians crafting today’s economic programs will take this book to heart.


The Digital Economy Is Profoundly Unequal

Getty Images

Is unbridled innovation good for society? Can we trust the internet? Can we afford not to? These are some of the big picture questions being asked right now at the annual Institute for New Economic Thinking conference in Toronto. It’s a George Soros-sponsored academic shindig that has become a touchstone for the key economic policy conversations in the year ahead. This year, the topic is how to manage the societal fallout from our rapidly expanding digital world. At a time when much of what happens on the internet–from NSA snooping to runaway viruses like the Heartbleed bug to cyber-warfare with China–makes people scared, how do we craft a digital world that feels safer and more secure? And how can we make sure that the benefits of the digital economy–which currently accrue mostly to the top quarter of society–are more equally shared?

I discussed these issues with Quartz editor Kevin Delaney and the Guardian’s Heidi Moore, this week on WNYC’s Monday Talking (listen below). And I’m listening to some of the world’s top thinkers on the topic debate them here in Toronto. One of the things that I’ve found fascinating so far is how unequal the digital economy really is. Yesterday, University of Michigan professor Lisa Cook gave an illuminating (and somewhat depressing) presentation about this. For starters, innovation is making our economy more bifurcated. People who make their living interacting with technology and the digital world make a median salary of $74,000 a year. Those that don’t make $34,000. Women and minorities (with the exception of Asians) lag behind. 70 % of people in the “innovation economy” are non-Hispanic whites. And even for women with technology degrees, there’s a big pay differential. Men in the innovation economy make $80,000 per year and women make $53,000, in part because they tend to be concentrated in areas like life sciences, which pay less than physics or engineering or computer science.

So, what to do? Cook says the good news is that there’s reason to think that more diversity is good for business, and that can help drive change. Her research shows that co-ed patent teams, for example, are much more productive than single sex ones. And while pipeline issues used to be a big problem, women are getting more and more STEM degrees – roughly 40% of them now go to women, up from around 9% in 1970. Now, female entrepreneurs just have to start monetizing those educational gains. Cook says that women are founding less than 5% of new tech start-ups. All I can say is follow the money, sisters!


Can $68 Billion Make Wall Street Any Safer? Nope

This week, U.S. financial regulators announced that Too Big To Fail (TBTF) banks will be forced to increase their capital cushion by $68 billion, to comply with new financial reform rules. But if you think that’s going to finally make our financial system safe, you are wrong. At least, that’s the verdict from an all-star panel that spoke on the topic of financial stability on Thursday at the Institute for New Economic Thinking annual conference, being held this year in Toronto.

The panel was made up of a diverse group of heavy-weights: Andy Haldane, head Bank of England’s stability board, Stanford professor Anat Admati (author of “The Banker’s New Clothes”), Richard Bookstaber from the U.S. Treasury’s Office of Financial Research, and Boston College professor Edward Kane. What’s disturbing is that they all came to the same conclusion—not only have we not repaired the financial regulatory system since Lehman, but we may have made things worse by creating a complicated spaghetti bowl of new rules that don’t actually address the fundamental problem. (Those would be Dodd-Frank and Basel III.) Banks need a lot more money, and the financial lobby needs a lot less.

Haldane, one of the most influential voices these days in economic policy circles, laid out the situation with stark numbers showing that, amazingly, global TBTF banks are bigger, more complicated and riskier than before the crisis. In 2006, for example, such banks held $1.3 trillion on their balance sheets. Today, they hold $1.7 trillion. Back then, they held $19 trillion worth of derivatives, those “weapons of financial destruction” that Warren Buffett complained about. Today, they have $31 trillion. Thanks to the Fed’s post crisis low interest rate policy, they pay less than ever to borrow money, which means that debt is cheap. That’s one reason the amount of debt held by such banks is still about 21 times their assets. Yes, those “leverage ratios” are lower than the 32X average in 2000. But holding that much in liabilities means that if asset prices go down even 5%, banks will once again be in the gutter. And history shows that happens about once ever 20 years–meaning, if big banks don’t put away a lot more capital, we can look forward to another Lehman Brothers event in our lifetime.

Which kind of puts this week’s capital announcements in context. Sure, it’s great that banks are being required to hold 5% of their own cash, rather than the usual 3%. But no other business in America, not to mention individuals, would be able to survive with a balance sheet that looked like this. Bankers would argue that things have changed hugely from the pre-crisis days till now. After all, the CEOs of the world’s top banks got paid an average of $20 million a year back then (many U.S. chiefs got more), and only $9 million now. Yet the value of these banks’ stock has plummeted over that time, as has their asset base. If you look at pay as a percentage of assets, it’s now 42%—3 percentage points higher than it was back in 2006.

What’s the solution? The panelists had plenty of ideas. Make banks hold a lot more cash–more like 25% of their balance sheet. Make risk models, which are amazingly simplistic given the complexity of the global financial system, a lot more sophisticated. And make financial institutions pay criminally for bad behavior. The U.S. Supreme Court’s Citizen’s United decision, which gave corporations the same rights as people, paved the way for ever more lobbying money to make its way into our system. (Some 96 % of all Dodd-Frank consultations were taken with bankers themselves, which is perhaps one reason the system looks as ineffectual as it does.)

If companies get the upside of being people, they should get the downside too, argued Ed Kane. That means prosecution for malfeasance, and punishments like being split up if they take on risk that leads to a taxpayer bailout (no, nobody believed the current Dodd-Frank promises of no more bailouts would actually hold in a financial crisis). It may sound wacky–but so does the fact that bankers are getting more pay per dollar of assets today than they were before they wrecked our financial system.


Sam Palmisano’s Advice to Younger Tech Titans: Don’t Show Up to Davos in a Hoodie

Dell & IBM CEOs On Technology, Innovation, and Deficit Reduction
Samuel "Sam" Palmisano, former chief executive officer of International Business Machines Corp. (IBM). Bloomberg—Bloomberg via Getty Images

IBM has been, in many ways, the Teflon tech company. At a time when big Silicon Valley firms like Apple, Google, Yahoo and others have been under fire for everything from tax avoidance, to offshoring, to playing fast and loose with privacy, the 101 year old Armonk, NY giant has managed to look like the model for socially responsible business. It has garnered good press for everything from its educational initiatives, to its support for local supply chains in the U.S. Its Smarter Cities initiative, in which it works with local leaders to knit together public transport, economic development, energy, and digital strategies is another example of how the company deftly manages to bridge the global/local divide.

A good chunk of the credit for this goes to former IBM CEO Sam Palmisano, who led the company between 2003 and 2011, during which time it achieved record performance, in part by successfully shifting its business model from hardware to services, but also for connecting social goals in areas like education, health and safety with revenue building, under the “Smarter Planet” strategy. Basically, IBM figured out not only how to make money serving local governments by building out city infrastructure, providing products and services in schools, hospitals and elsewhere, but how to avoid some of the globalization backlash that typically plagues big tech companies with fat margins and multinational reach.

I’ve always been interested in how the company pulled all this rare feat off. That story is one of the things that Palmisano is touting in his new eBook, Re-Think: A Path to the Future, which is meant to be a roadmap for how to build a 21st century multinational. The title is unsexy, and, truth be told, so is much of the book itself. But Palmisano, who is now a director at the Center for Global Enterprise (which aims to research and roadmap the practices of the most successful and sustainable firms around the world, from family owned businesses in Germany to American blue chip multinationals) does have some interesting insights and old school corporate wisdom that the younger generation of Silicon Valley techies, as well as any number of other corporate leaders, should pay attention to. Below, his five most interesting takeaways:

  1. “Don’t show up to Davos in a hoodie.” That was Palmisano’s tongue in cheek answer to my question about why tech is no longer Teflon. But his point is actually serious. Too many corporate leaders are inward facing, focused mainly on themselves and their own corporate cultures. 21st century leaders are going to be dealing with a much broader range of stakeholders – both public and private – in a bigger array of geographies than ever before. It’s important to reflect and understand those cultures, not just your own.
  2. Localnomics matter. The brilliance of IBM’s Smart Planet strategy is that it’s totally global, but feels local. “To succeed as a globally integrated enterprise today, you have to connect with the local agenda,” says Palmisano. Smart Planet allows IBM to embed its products and services in local schools, sanitation services, hospitals, and power companies. They become a go to player in providing basic public services – thus building trust in local communities.
  3. Cities are more important than countries. They are where over 50% of the world’s population, and most of its money, is. “Life comes together in cities, not in countries,” says Palmisano. IBM builds its business around the biggest and most important ones.
  4. Values can be motivational. When he was faced with the challenge of trying to get a bunch of patent holding IBM engineers who’d spent a lifetime building a PC business to ditch that and come up with a new technology strategy around services, Palmisano issued a challenge: “What can this company do to create a safer and more secure society?” The result, after several years, was Smart Planet. Of course, it didn’t hurt that he threw $100 million in blue-sky money at them to help develop promising ideas.
  5. Which goes to the final point – think long-term and ignore the bankers. When Palmisano realized the company had to evolve or die, back in 2006, he decided to take a radical step and refuse to issue quarterly earnings guidance to the Street. “I knew we had a good plan, but I also knew we needed time to execute it, and it was going to be tough to have the operational flexibility we needed,” with Wall Street analysts watching for an earnings bump every few months. The long-term thinking paid off – two years later the stock soared. Palmisano believes more companies, particularly high performing ones, should make the same decision. “If you are trying to squeeze a few more cents out every quarter, it can be hard to make the best long term decisions.”
TIME China

China’s Growing Debt Problem

A new hurdle for the world’s second largest economy

One of the most telling economic events since the financial crisis has gone almost entirely unnoticed. A few weeks ago, China had its first corporate-bond default. The company in question, a solar-energy-equipment firm called Shanghai Chaori, was small, private, highly leveraged and not very important. But the default speaks volumes about the state of the world’s second largest economy. China is in the middle of a debt crisis the likes of which we haven’t seen since the fall of Lehman Brothers. Chaori’s default was tiny by comparison. It couldn’t make a payment on a $163 million bond; Lehman owed $613 billion when it folded. But it’s the tip of an iceberg that is now nearly double the size of China’s GDP. By allowing Chaori to go bust, the Chinese signaled they’re no longer in denial about the problem.

That matters in a country in which statistics are precooked and every economic move, even the run-up in debt itself, is planned. Back in December 2008, I met in Beijing with Jiang Jianqing, the head of ICBC, China’s largest financial institution. He acknowledged that the massive government stimulus program that was put in place to cope with the global slowdown would result in a higher percentage of bad Chinese loans. After all, when Beijing says, “Lend,” state-owned banks ask, “How much?” even if borrowers aren’t creditworthy. China’s biggest banks wrote off more than twice the level of bad loans last year as they did in 2012.

That’s no surprise given the size of China’s debt bubble. Over a year ago, Ruchir Sharma, head of emerging markets for Morgan Stanley Investment Management, pointed out that China was pumping out credit faster than any other country. The problem: much of it went into dubious public-sector investment (unneeded rail lines and housing projects) rather than productive private enterprises. Five years ago it took just over a dollar of debt to create a dollar of economic growth in China. Today it takes four dollars of debt to create a dollar of growth. Those are crisis numbers by any standard.

A financial crisis in China isn’t the same as one in the U.S. For one, Chinese debt is almost completely Chinese-owned. A large chunk of it is in the public sector, and the central government, which holds some $4 trillion in reserves, can bail out firms at will. Indeed, as the Conference Board’s China economist Andrew Polk points out, they’ve done that more than 20 times in the past two years, a measure of how long the crisis has been brewing. “It will be difficult for China to have a Lehman moment,” he says, “because China can always find a buyer of last resort somewhere in the state system.”

That sounds good, but it also means China can let its debt crisis fester. That will only make things worse in the long run, increasing moral hazard and slowing economic growth, which may be as low as 5% this year. (That’s down from double digits a few years back.) Worse, the government is already using those figures as a reason to backtrack on its recent promises to reform the economy. Beijing is now talking about more stimulus to keep the country’s growth rate up around the 7% it says is needed to keep unemployment from reaching dangerous levels. China’s leaders fear unemployed masses taking to the streets: historically in the Middle Kingdom, those sorts of events tend to end with people being paraded around and then shot.

Trouble is, the argument that more debt is needed to keep unemployment down no longer holds water. As Sharma points out, every percentage point of GDP growth now creates around 1.7 million new jobs–up from 1.2 million a decade ago. Also, fewer young people are coming into the workforce as the population ages. That means even 5% growth would likely keep the Chinese economy stable. So why isn’t the country doing more to deflate its debt bubble and change its economic model? Because as in the U.S., the political and economic elite have little impetus to change a system that has made them fantastically wealthy.

That’s the real economic risk factor in China right now. While Beijing may allow firms like Chaori, which are not systemically important, to go under in order to convince people that it’s grappling with the debt issues, provincial governments and state-owned companies are still too big to fail. That might not result in a Lehman Brothers moment. But it will make it harder and harder for the country to move to its next stage of economic development, which, given that China has represented about a third of global growth since the 2008 financial crisis, has implications for us all. Will China be a drag or a boon to the global economy? Perhaps more than at any other time since the country began its transition to capitalism some 30 years ago, the answer is as blurry as the air in Beijing.


The Rise of Finance and the Fall of Business

Two of the biggest business news events of the moment—GM’s ignition switch scandal and the hoopla over Michael Lewis’ new book about high frequency traders—actually have roots in the same issue: the financialization of America. This is a topic I’ve been fascinated with for some time. As finance and financial thinking have grown more and more dominant in our business landscape over the last several decades, you are seeing all sort of systemic problems, from the triumph of the bean counters over the engineers at GM to the rise of trading that enriches only the trader, rather than society. I feel strongly that the financialization of American business is leading to short term thinking and a huge variety of problems—everything from the focus on share-buybacks over R & D spending in so many Fortune 500 companies, to the fact that we have a tax code that treats gains from short term trading the same way it does those from long term holdings. I can only conclude that this is a trend that will continue. The latest Bureau of Economic Analysis numbers out earlier this year show that finance as a percentage of our economy is once again creeping back up. NYT columnist Joe Nocera and I discussed this and more on this week’s episode of WNYC’s Money Talking, here:

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